A taxpayer saw most of his alimony deduction disallowed after overstating the total amount paid and failing to properly allocate payments between child support and alimony. Becker v. Comm'r, T.C. Summary 2015-2.

Background

Joseph Becker and his wife, Jennifer, separated in 2009. Under their final divorce decree, Becker owed $8,205 for alimony and $8,307 for child support in 2011. After making payments to Jennifer totaling $9,688, Becker claimed an alimony paid deduction of $12,036 on his 2011 tax return.

The IRS disallowed the entire alimony expense deduction. Becker challenged that determination, arguing that he allocated payments between child support and alimony in 2011. In accordance with instructions from his family law attorney to deduct the child-related expenses that he paid directly rather than to his wife, Becker claimed he was allowed to reduce the child support for those direct payments but not the alimony. He acknowledged, however, that the amount he claimed on his 2011 tax return for alimony paid also included child support payments and would need to be adjusted accordingly.

Becker argued, by his calculations, he paid $5,462 in alimony and therefore should be entitled to a $5,462 deduction. The IRS conceded he was entitled to a $1,381 deduction.

Analysis

In general, amounts fixed by the divorce or separation instrument as a sum which is payable for child support are not deductible (Code Sec. 71(c)(1)). Where the payments actually made are less than the amounts specified in the divorce instrument for alimony and child support, those payments are considered to have been made towards child support first and are only allocated towards the alimony portion once child support has been fully paid (Code Sec. 71(c)(3)).

The Tax Court examined the divorce instrument, which specifically designated amounts for alimony and for child support totaling $8,205 and $8,307, respectively, and noted that Becker only made payments of $9,688. The court reasoned that Becker failed to account for Code Sec. 71(c)(3), which applied to the underpayment of support and required applying the amounts to child support before alimony. Consequently, the court agreed with the IRS's calculation and determined that $8,307 of the $9,688 of payments should be allocated as child support, leaving the $1,381 remainder allocated as alimony. Accordingly, the court concluded Becker's deduction was limited to that amount.

The court also upheld the 20 percent accuracy-related penalty levied by the IRS under Code Sec. 6662 based on Becker's substantial understatement of his income tax and his attempt to claim a deduction in excess of the amounts he actually paid. The court reasoned that, while the return had been prepared by a C.P.A. and the reduced child support calculations were made on the advice of his lawyer, Becker failed to explain the disparity between the $12,036 claimed deduction and $9,688 total paid in alimony and child support.

For a discussion of alimony and transfers between spouses, see Parker Tax ¶ 14,200. (Staff Editor Parker Tax Publishing)

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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